DivX has pulled of something of a codec coup, but buying the German codec developer that is behind the Adobe H.264 version of its Flash video, MainConcept, for $22 million, with another $6 million in future performance related payments.
The original supplier to Adobe with its VP6 and VP7 codecs was US firm On2 Technologies and when it introduced an H.264 codec by acquiring Finnish company Hantro earlier this year, and added it into its Flix encoder engine this year, the assumption was that it was going to get the Adobe vote in Flash H.264 video.
But in August MainConcept announced that it had cut a deal to license its codecs and toolkits to Adobe for its Flash Player software, potentially undermining and replacing On2 as the chief beneficiary of future Adobe development. It took licenses for the x86, PowerPC and ARM versions of MainConcept’s H.264 and AAC decoders and included them in Adobe Flash Player 9, code named Moviestar.
DivX and ON2 have been the poster children for the success of small, tight knit codec teams, and their stock has gone wild and their revenues growing at 42% and 51% respectively last quarter. However DivX here is the senior partner with a market capital of $582 million and quarterly revenues of $21.9 million, both profitable and on track to do something close to $100 million this year.
By comparison On2 is on track for around $10 million and did just $ $2.5 million last quarter. It is valued at around $147 million, but this fell some 15% in the last week after news of the MainConcept deal hit the stock. On2 paid the equivalent of $58 million in shares to buy Hantro earlier this year.
The interesting thing is that DivX has managed all of its successes to date using MPEG4 part 2 ASP profile, the old MPEG4, and now in one smooth move it can shift its technology to the MPEG 4 Part 10 AVC profile which is dominating codecs lately, and shift back into the technology lead, as well as the revenue lead.
‘MainConcept is a solid strategic complement to our high gross margin licensing business,’ stated Dan Halvorson, DivX Executive Vice President and Chief Financial Officer. ‘The increased costs related to operations and the integration of MainConcept could impact our fourth quarter by approximately $0.02 to $0.03 per diluted share. We expect this acquisition to be accretive to our quarterly earnings in the second half of 2008.’
MainConcept is headquartered in Germany with subsidiaries in the USA, Russia, and Japan and distribution partners in China, Korea, and Taiwan. Customers include Adobe, Microsoft, MobiTV, Sonic Solutions, Sony, and Panasonic.